FHA vs Conventional: Which Loan Is Cheaper

Buyers hear "FHA" and "conventional" and assume it comes down to credit score. It does, partly. But the bigger cost difference is what happens to your mortgage insurance after closing, and that is the part most people never compare.

Here is the plain math.

The down payment

FHA loans ask for 3.5% down with a credit score of 580 or higher, per the HUD Handbook 4000.1.

Conventional loans can go just as low. Fannie Mae's HomeReady program and the standard 97% LTV option let qualified first-time buyers put down 3%, per Fannie Mae's underwriting guidelines. So on down payment alone, conventional can actually ask for less cash up front than FHA.

The part that changes the real cost: mortgage insurance

Both loan types charge mortgage insurance when you put down less than 20%. That is normal. The difference is how long you are stuck paying it.

FHA mortgage insurance (MIP) stays for the life of the loan on most 30-year loans with a low down payment, per HUD Handbook 4000.1. Paying it down to 20% equity does not remove it. The only way off is usually a refinance into a different loan.

Conventional private mortgage insurance (PMI) comes off once you reach about 20% equity, under the Homeowners Protection Act (Consumer Financial Protection Bureau). No refinance needed. You hit the threshold, you ask your servicer, and the payment drops.

That is the real fork in the road. FHA insurance is often cheaper per month at first, especially for lower scores, but it can ride with you for the full 30 years. Conventional PMI might cost more up front if your score is on the lower end, but it has a built-in exit.

So which one is cheaper?

It depends on your score and how long you plan to stay in the home.

• Lower credit score, tight cash: FHA is usually the easier approval and the lower entry cost. Just know the insurance is not going anywhere on its own.
• Score in the mid-600s or better, planning to stay a while: Conventional is worth a close look. You may pay a bit more insurance early, but it disappears once you build equity, which lowers your payment for the back half of the loan.
• Score near 740 or above: Conventional usually wins outright. Better pricing and PMI that comes off.

There is no single right answer that fits every file. It is a math problem, not a rule of thumb, and the numbers change with your score, your loan size, and your local market.

Run both numbers before you decide

The only way to know for sure is to run your actual score and down payment through both programs side by side. Nine wholesale lenders price these differently, and the gap between an FHA quote and a conventional quote on the same file can be bigger than people expect.

Call North Florida Mortgage at 904-389-4635. We will run your numbers both ways and show you the real monthly difference, not just the down payment headline.